THE EMPEROR STRIKES BACK AGAINST CLAIMS OF FRAUD

J. Linn Allen, Tribune Staff WriterCHICAGO TRIBUNE

Sam Zell, by turns boisterous, combative and slyly humorous, hit back Wednesday at a former member of his real estate empire's inner circle who is suing him for fraud, calling his accuser a "baldfaced" liar.

The billionaire financier took the stand in a federal racketeering lawsuit by the former colleague, Richard Perlman, that accuses Zell of orchestrating a long-term scheme to defraud Perlman of millions of dollars in investment earnings and other compensation.

Zell, rated by Forbes magazine as the area's sixth-richest individual, with a personal fortune of $1.7 billion, is head of a vast realm of investments that include controlling interests in some of the top companies and most notable properties in America.

Zell characterized Perlman, who was forced out of the business in 1990, as a loner who didn't participate in the daily lunches in which the top echelon of Zell's holding company tossed around ideas for the often-risky deals that gave the enterprise its drive.

"(In)) a business where risk is the commodity that you're dealing with, being a loner is very scary," added the 56-year-old, craggy-headed financial wizard.

But his most cutting scorn was reserved for Perlman's contention that $300,000 Perlman received in 1988 was a bonus disguised to look like a loan for tax purposes. Zell is countersuing Perlman for repayment of the money.

Zell said Perlman had asked to borrow the sum so he could build a ski chalet in Vail, Colo. He heaped scorn on Perlman's argument that Zell's late partner and close friend, Robert Lurie, intended the money as a bonus without Zell's knowledge. Lurie died of cancer in 1990.

"It's such a baldfaced lie that Lurie would spend $300,000 of our money without dealing with me," Zell said.

Perlman's suit also alleges Zell and some other top officials of Zell's Equity Group Investments connived in fraudulent schemes over real estate partnerships that yielded Zell hundreds of millions of dollars while failing to give Perlman money he was due.

But Zell said that under the terms of agreements giving Perlman participation in the partnerships, he isn't owed the money yet because many of the properties haven't been disposed of.

And giving a rare view of some of his business failures, Zell spoke of losing $20 million on the Ford City Shopping Center on Chicago's Southwest Side, which he recently sold, and $40 million more on an office building in Cincinnati and another shopping center in Sarasota, Fla.

"I just raked in all the losses," he said.

He also alluded at various times to the precarious state of his business in the early 1990s, when the value of property plummeted and banks stopped extending loans.

Millions of dollars that ostensibly went to him through refinancing of mobile home partnerships at the time actually went simply to make his payroll and keep the business going, he said. "I never got a nickel of it," he added.

Some of the testimony turned on the issue of whether Zell is the cold, ruthless capitalist who discards associates such as Perlman--who worked for Zell for 14 years--when he has no more use for them.

Perlman's attorney, William Schopf, referred to a report of a speech Zell made last fall at Northwestern University's J.L. Kellogg Graduate School of Management, saying that the key responsibility of a corporation is to provide jobs, ". . .not to build schools, it's not to support the Lyric Opera and all of that other crap."

Zell testified that he personally gives $1 million to $2 million a year to charity and had given a total of $11 million to the University of Michigan and the University of Pennsylvania in honor of Lurie.

"Giving charity is good, it's wonderful, it's what life is about, but it's your money, not the shareholders'," Zell said. "I was telling them that the corporate role is not to be charitable but to create jobs . . . make a contribution to the economics of society."

The trial before Judge Ruben Castillo in U.S. District Court began Jan. 21 and is expected to last into next week.